GEZ petrol station: CVP analysis and
spread sheet modelling for planning
and decision making
Ku Nor Izah Ku Ismail, Wan Nordin Wan Hussin and Mat Supian Salleh
Ku Nor Izah Ku Ismail is
a Professor and
Wan Nordin Wan Hussin
is a Professor, both at
Universiti Utara Malaysia,
Kedah, Malaysia.
Mat Supian Salleh is a
Senior Manager at
Petronas Dagangan
Berhad, Kuala Lumpur,
Malaysia.
Introduction
As the Area Manager for GEZ Berhad, a major oil company in Malaysia, in 2011, Aiman was
responsible for directing the sales activities of more than 20 petrol stations in the northern
region of Malaysia. He was also responsible for providing training to petrol station dealers
and staff, initiating sales promotions and implementing key initiatives to improve sales.
Despite being a stable business with an increasing number of vehicles, petrol station
operators often faced the difficulty of sustaining their businesses, leading to the termination
of their dealership licences. The lack of knowledge in cost accounting and lack of
awareness about the usefulness of Excel spreadsheet models to aid planning and decision
making, amongst other things, contributed to business failures. Realising the importance of
understanding management accounting concepts and tools such as cost behaviour, cost
allocation, cost-volume-profit (CVP) analysis and acquiring a core set of skills in
spreadsheet modelling, Aiman believed that, in today’s data-driven environment, the
dealers and their relevant staff should be expected to use Excel in analysing accounting
information and solving business problems. They should be able to differentiate between
variable and fixed expenses, and build a CVP model for scenario planning and decision
making. Aiman sought the assistance of Rizal, a local university accounting lecturer, to
build a CVP model that he could use in the dealers’ training to impress upon the dealers the
power of Excel functionality in showing how sensitive projected results are to changes in
scenarios or changes in critical operational variables. To develop the spreadsheet model,
Rizal gathered the relevant data from the operator of the Baron Service Station (BSS), one
of the most successful GEZ dealers in the northern region of Malaysia.
GEZ petrol stations
Disclaimer. This case is written
solely for educational
purposes and is not intended
to represent successful or
unsuccessful managerial
decision making. The author/s
may have disguised names,
financial and other
recognizable information to
protect confidentiality.
DOI 10.1108/EEMCS-09-2014-0220
As of October 2010, there were 3,182 petrol stations and 332 mini-petrol stations in the
Malaysia, selling about 25,000 million litres of petrol and diesel. Selangor saw the highest
number of petrol stations, followed by Johor and Perak (Exhibits 1 and 2). GEZ petrol
stations were set up by GEZ Berhad, one of the main players in the petroleum retailing
industry, and GEZ petrol station operators ran the business under three basic concepts:
company-owned station (COS), partially company-owned station (PCOS) and dealer-built
station (DBS). The operators of PCOS and COS were landowners themselves or were
nominated by and agreed on by GEZ. Under the DBS concept, the operators were not the
landowners.
Normally, a GEZ petrol station conducted two main businesses – the fuel business and the
convenience store business, known as SelesaMart. Under the fuel business, the petrol
stations sold petrol research octane number (RON) 95 (R95), petrol RON 97 (R97) and
VOL. 5 NO. 3 2015, pp. 1-15, © Emerald Group Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES
PAGE 1
diesel. In 2010, the total monthly sales of petrol and diesel for GEZ stations throughout
Malaysia were 200 million litres and 150 million litres, respectively.
The SelesaMart stores sold, amongst other items, groceries, snacks, drinks, confectionery
and cigarettes. On average, there were about 2,500 stock keeping units (SKUs) in each
store. In addition, there were more than 40 business partners operating at GEZ service
stations. Affiliations with reputable business partners have always been GEZ’s preference
at the service stations and convenience stores, which include amongst others, A&W,
AmBank, American International Group (AIG), Bank Rakyat, BSN, Burger King, CIMB,
Délifrance, Dunkin’ Donuts, Giant, KFC, Maybank, McDonald’s, OCBC and RHB.
Automated teller machines (ATM) were also installed at some of the service stations and
GEZ also provided counters for Touch‘n Go reloads.
One of the advantages of operating a petrol station is that the business is stable and
consistent in the long run. With the growing number of vehicles in the country, the demand
for fuel keeps increasing. In 2010, there were 20.2 million motor vehicles registered with the
Road Transport Department, an increase from about 17 million in 2008 (Exhibit 3). The
figures were expected to increase to more than 21.4 million and 22.7 million in 2011 and
2012, respectively. The Federal Territory of Kuala Lumpur recorded the highest number of
motor vehicles (4.6 million in 2010), followed by Johor, Selangor and Pulau Pinang
(Exhibit 4). Another advantage was that the operators did not have to spend on advertising
as GEZ would do it. There was no problem in dealing with customers as the price of fuel
was fixed.
According to Aiman, there were several disadvantages associated with petrol stations.
First, the fuel business had a very low profit margin, and it was important that operators
managed their cash collection well. In 2010, the cost of petrol was about 94 per cent of the
sale price. In addition, there was a product loss due to the evaporation of fuel during filling.
Another problem that petrol operators had to face was the increasing cost of credit card
fees paid to banks, as more and more customers were using credit cards. The typical credit
card fee imposed by banks was 1 per cent of the sales price.
Developing a CVP model: the case of BSS
To begin the assignment, Rizal gathered the necessary data from BSS. The model that he
would develop could be applied by petrol station operators in the same category. Located
in Kedah, BSS was one of the busiest petrol stations in the state with monthly average sales
of about RM 1.7 million in 2010. Of that amount, RM 1.6 million was generated from the fuel
business and the rest from SelesaMart. Under the fuel business, the sales proportion was
about 79 per cent for R95, 2 per cent for R97, and 19 per cent for diesel. All products were
subject to product loss due to the evaporation of fuel during filling. The tolerable product
loss was 0.3 per cent for diesel and 0.5 per cent for petrol. The petrol station had four
pumps for petrol and one for diesel, and the total number of nozzles was 20.
As for SelesaMart business, the average gross profit margin of the products was 20 per
cent. The operator paid a royalty of 5 per cent of the sales value to GEZ. In addition, a fixed
equipment fee was paid on a monthly basis.
Revenue and cost of fuel
In 2010, BSS generated a sales revenue of RM 20,682,189.60 comprising RM
19,251,897.60 of fuel sales and RM 1,430,292 of SelesaMart sales. Sales from SelesaMart
are expected to vary directly with the total litres of fuel sold. Table I shows the information
on sales units in litres, price per litre, cost per litre and the percentage of product loss of
the three types of fuel in 2010.
PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES
VOL. 5 NO. 3 2015
Table I Baron Service Station – revenue and cost of fuel
Products
Sale (litres)
Price per litre (RM)
Cost per litre (RM)
Product loss (%)
R95
R97
Diesel
8,459,604
174,576
2,037,072
1.80
2.05
1.80
1.6856
1.9356
1.7388
0.5
0.5
0.3
Employees and salary
BSS hired one station manager who looked after both businesses. Under his direct supervision
were two supervisors – one for the fuel business and one for SelesaMart, and 12 crew members
were located at the forecourt to assist customers in filling the fuel, working in different time
shifts. At any point of time, there were two cashiers working at the sales counter – one to
concentrate on the fuel transactions and one for the shop, even though they handled both
transactions at times. In total, there were six cashiers working for BSS.
One clerk was responsible for documenting and recording the transactions of both
businesses. Two general workers were hired to ensure the cleanliness of the station. A
security guard was appointed to take care of the station during night time. The monthly
salary per employee according to jobs is shown in Table II.
Other expenses
Credit card sales accounted 40 per cent of total sales. A 1 per cent fee was charged by
banks for credit card transactions. In total, 60 per cent of the electricity, water and
telephone expenses were allocated to the fuel business and 40 per cent to SelesaMart.
During 2010, Baron spent RM 75,000 on electricity, water and telephone.
BSS rented several pieces of equipment which include gondolas, a chiller, a pelmet and a
cashier’s counter for the operation of SelesaMart. The annual rental payment of the equipment
for 2010 was RM 7,380. The petrol station paid an insurance premium of RM 1,920 in 2010. The
insurance package covers robbery, fire, public liability and workmen compensation for the
entire business. During the same year, BSS spent RM 2,400 on stationery.
What if the government raise fuel prices and an ATM kiosk was installed?
Armed with the above operational and financial data, Rizal began his analysis to find out
how lucrative the service station business was after taking into consideration all the
possible costs and ascertaining whether they are fixed or variable costs. Rizal was also
concerned that the financial model should be flexible to perform scenario analysis, such as
what would happen to the profitability of the GEZ petrol station if there were revisions to the
fuel prices to reduce the government fuel subsidy. Normally, a revision in fuel price will not
affect the operators’ profitability much, as the margin per litre would remain the same, at
least in the short run. For example, when the government announced that there would be
a 40 sen increase in price per litre, operators would also have pay 40 sen higher.
In addition, Rizal wished that the model could be used to perform CVP analyses; for example,
to break even, how much sales the petrol station of this type should generate from each of the
Table II Baron service station – monthly salary and number of employees
Position
Station manager
Supervisor
Cashier
Crew
Clerk
General worker
Security guard
Monthly salary per person (RM)
No. of staff
3,206
1,674
950
812
960
805
1,000
1
2
6
12
1
2
1
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EMERALD EMERGING MARKETS CASE STUDIES
PAGE 3
fuel products and the SelesaMart. There is also a possibility that more customers may be lured
to buy fuel from the GEZ petrol station if an ATM kiosk were to be installed, resulting in higher
Keywords:
sales. However, the bank may charge the GEZ petrol station a fixed annual fee to cover
Sensitivity analysis,
administrative costs. Given the uncertainty on the sales outcomes of providing the ATM facility,
Cost–volume–profit analysis, it would be useful if the model could determine the incremental profits from installing ATM kiosk
Excel spreadsheet,
under the most pessimistic scenario (i.e. fuel sales increased by a mere 1 per cent) to the most
Financial modelling
optimistic scenario (when fuel sales increased by up to 10 per cent).
Exhibit 1
Figure E1 Number of petrol and mini petrol stations in Malaysia: October 2010
NUMBER OF PETROL STATIONS BY STATES, OCTOBER 2010
700
624
NO. OF STATIONS
600
467
500
400
328
300
200
100
103 108
223
184 194 197
146 159 162
262
25
0
TOTAL: 3,182 STATIONS
NUMBER OF MINI-PETROL STATIONS BY STATE, OCTOBER 2010
120
98
NO. OF STATIONS
100
80
66
60
40
20
0
2
4
4
9
17
18
19
21
23
25
26
TOTAL: 332 STATIONS
Sources: Domestic Trade Division; Ministry of Domestic Trade;
Co-operatives and Consumerism
PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES
VOL. 5 NO. 3 2015
Exhibit 2. Sales of fuel (million litres)
Table EI
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010 (January-November)
Petrol (million litres)
RON 97
RON 95
7,340
7,894
8,232
8,736
9,083
9,613
9,896
10,266
10,836
8,161
1,629
–
–
–
–
–
–
–
–
–
3,816
10,496
Diesel (million litres)
2,873
2,511
2,987
4,113
5,563
5,622
5,467
5,027
6,039
5,566
6,526
Sources: Domestic Trade Division; Ministry of Domestic Trade; Co-operatives and Consumerism
Exhibit 3. Number of motor vehicles registered by type, Malaysia, 2008-2010
Table EII
Vehicle type
Total registered
Buses
Goods vehicles
Motorcars
Motorcycles
Taxis and hired cars
Other vehiclesa
2008
2009
2010
17,971,901
64,050
909,243
7,966,525
8,487,451
90,474
454,158
19,016,782
66,581
936,222
8,506,080
8,940,230
95,728
471,941
20,188,565
69,149
966,177
9,114,920
9,441,907
102,961
493,451
Note: aIncludes vehicles such as caravans, government and private fire vehicles, driving school
vehicles, hearse, vehicles for disabled, government vehicles, local authority vehicles, ambulance
and embassy vehicles
Source: Road Transport Department
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Exhibit 4. Total motor vehicles, by type and state, 2010
Table EIII
State
Motorcycle
Motorcar
Bus
Taxi
Hire and
drive car
Goods
vehicle
Others
Total
Perlis
Kedah
Pulau Pinang
Perak
Selangor
Wilah Persekutuan
Negeri Sembilan
Melaka
Johor
Pahang
Terengganu
Kelantan
Sabah
Sarawak
Malaysia
60,200
683,134
1,124,476
1,089,128
1,037,498
1,349,885
443,358
368,365
1,414,665
445,922
278,927
393,690
204,662
547,997
9,441,907
17,979
257,193
890,652
613,094
987,024
2,867,830
280,914
270,143
1,160,041
305,042
158,860
232,322
487,510
586,316
9,114,920
206
3,254
5,781
4,729
7,232
18,050
2,785
2,019
9,982
2,050
1,131
2,002
6,783
3,145
69,149
196
3,591
3,701
4,355
9,593
34,142
2,080
1,797
12,022
2,666
1,127
2,044
5,096
2,251
84,661
2
755
529
73
325
14,632
16
46
114
16
17
10
1,233
532
18,300
1,826
35,008
62,952
63,303
149,805
204,886
39,923
24,193
121,729
38,435
19,731
25,889
104,495
74,002
966,177
1,379
19,209
19,140
36,487
70,406
145,787
7,778
5,865
49,713
13,677
7,288
7,895
53,402
55,425
493,451
81,788
1,002,144
2,107,231
1,811,169
2,261,883
4,635,212
776,854
672,428
2,768,266
807,808
467,081
663,852
863,181
1,269,668
20,188,565
Source: Road Transport Department
Corresponding author
Ku Nor Izah Ku Ismail can be contacted at: [email protected]
PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES
VOL. 5 NO. 3 2015
Abstract
Title – GEZ petrol station: CVP analysis and spread sheet modelling for planning and decision making.
Subject area – Management Accounting and Financial Modelling.
Study level/applicability – Undergraduate and post-graduated levels.
Case overview – Aiman, the Area Manager of GEZ Berhad, realised the importance for petrol station
operators to have an understanding of fundamental management accounting concepts such as cost
behaviour and cost–volume–profit (CVP) analysis. He also believed that the petrol station operators
should be proficient in using Microsoft Excel functionality and able to construct “intelligent” financial
model with extended sensitivity analysis. Being a manager responsible for training the petrol station
operators, Aiman would like to introduce the CVP concepts and spreadsheet model-building process to
the petrol station operators, to aid them in planning and decision making. To construct the Excel
spreadsheet model, Aiman sought the assistance of Rizal, a university lecturer in accounting, who in
turn gathered the relevant operational and financial data from Baron Service Station, a typical petrol
station under GEZ stable. The model should be flexible enough to allow the petrol station operator to
anticipate, for example: What will happen to overall profitability of the petrol station if the fuel prices go
up? What is the minimum volume of fuel that needed to be sold to break even? How much extra profit can
be generated if credit card sale is reduced? and Is it viable to install an automated teller machines (ATM)
kiosk and incurring administrative charges from bank to lure more customers to visit the petrol station?
As the petrol station sells multiple products (petrol, diesel and convenience goods), the owner is also
interested to know which product lines are the most and least profitable. Thus, the model should be able
to generate segmented income statement with appropriate allocation of the common fixed costs to the
each of the products.
Expected learning – outcomes The case discussion is intended to achieve the following learning
outcomes: students are able to prepare a financial model which include a segmented contribution
income statement based on the information on product mix; students are able to calculate the
break-even point and distinguish between fixed and variable costs; students are able to differentiate
between traceable fixed costs and common fixed costs; students are able to build a financial model that
is sufficiently flexible to allow various what if analysis to be performed; and students are able to use what
if analysis tools in Excel such as Goal Seek and Data Tables.
Supplementary materials – Teaching notes are available for educators only. Please contact your
library to gain login details or email [email protected] to request teaching notes.
Subject code – CSS 1: Accounting and Finance.
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